In an article appearing on EWTN News, Acton Director of Research, Samuel Gregg, is interviewed on rising food prices and the effect on the developing world. In this article, Dr. Gregg contributed to a broad discussion on the many factors contributing to the rising food prices.

He advocates for a free market economy in agriculture by discussing the effects agricultural subsides in Europe and the United State, and how these market distortions contribute to stifling the growth of agriculture in the developing world. Furthermore, the effects of the oil industry on food prices is also discussed along with Pope Benedict’s call for the need to address the problems of food insecurity in Caritas in Veritate.

Developing world’s food crisis seen as a ripple effect of over-regulation

By Benjamin Mann

The dramatic rise in global food prices was high on the agenda of the 2011 World Economic Forum on Africa, held from May 4–6 in Cape Town, South Africa. According to a leading Catholic economist, excessive government regulations are to blame for the rise in prices.

A complex combination of factors – including natural disasters and higher oil prices, as well as a rising standard of living in countries like China, India and Brazil – have made food less affordable in recent months.

The United Nations’ Food and Agricultural Organization has warned that the “food price shock” could have devastating effects upon the world’s poorest people.

At meetings in Cape Town, South Africa this week, African leaders discussed a “road map” to help the continent cope with rising prices through market-based approaches that would encourage local agriculture.

Some factors behind higher food prices, such as natural disasters, cannot be controlled. But Dr. Samuel Gregg, an economist at Michigan-based Acton Institute for the Study of Religion and Liberty, said other factors – especially agricultural subsidies and the manipulation of oil supplies – were preventing poorer countries from bringing their productive capacities to bear in the global market.

The result, he told EWTN News on May 6, is an under-supply of food, and higher prices.

“All the subsidies that go into agriculture – through things like import taxes and tariffs, as well as direct subsidies – have the paradoxical effect of reducing the incentive for investment in agriculture in developing countries,” Gregg observed.

Without the ability to sell their products at competitive prices on the global market, these countries end up producing less food, and attracting fewer investors.

“They end up saying, ‘We can’t compete because of subsidies in the European Union and the United States.’ Consequently, the supply of food starts to be reduced, because there isn’t the incentive for agricultural investment.”

“This effort to protect American and European farmers has the unintended consequence of reducing the supply of agricultural products from other people.”

He said farm subsidies, going mainly to large corporations rather than individual growers, were a “very good example” of how “a government program can have a completely unintended negative effect” on a critical area of the world economy.

If the barriers to competition were lifted, Gregg said, developing countries could attract more investment and increase their own productive capacities, to cope with global demand and bring food prices down.

But agricultural subsidies have the backing of powerful interest groups, and are often perceived as vital to the national interest.

Gregg also holds oil-exporting nations of OPEC responsible for high fuel prices that translate into more expensive food.

“The energy sector of the economy is not a free market – it’s a cartel,” he stated. “That’s something to keep in mind with all discussion about energy prices. This is why we worry about what OPEC is going to set as the price for gas, or for the production of barrels of oil.”

“It’s not the market that is controlling the price, for the most part. Generally speaking, it’s a cartel – which means that OPEC and other oil-producing countries introduce a whole range of price-distortions into the energy sector, resulting in higher prices.”

Oil prices, he said, “don’t reflect the true state of supply and demand.” Rather, Gregg said, they tend to reflect the will of countries exporting oil, and the inefficiency of frequently nationalized oil production.

Elsewhere, government regulations surrounding the refinement of oil into gas also play a role in raising prices, when refining capacity fails to keep pace with crude oil supply.

“There’s plenty of oil,” Gregg stated. “The problem is, there’s a disparity between supply and demand.” Meanwhile, this imbalance in the oil market has a ripple effect. “Just as energy prices go up,” he explained, “so do food costs.”

Another obstacle to meeting rising demand for food may come from ideological opposition to genetically-modified crops.

“There are all sorts of restrictions in place around the world, upon the development of genetically modified food,” Gregg noted. Genetic modification is highly controversial, and skeptics worry such crops could harm local ecosystems or human health.

But Gregg said that these concerns had to be weighed against the world’s urgent food needs, given that genetic modification could enable crops to be grown “in conditions where they might not otherwise be able to be produced.”

Many of these crops are also designed to resist natural occurrences – such as droughts, floods, and disease – that destabilize food prices.

“There’s no question that if more countries were enabled by law to engage in genetically modified agriculture, the supply of food would go up, and prices would come down,” he observed.

Gregg’s advocacy of what he called a “true free market in agriculture,” geared toward attracting investment in the developing world, reflects priorities that Pope Benedict XVI outlined in his 2008 encyclical “Caritas in Veritate.”

In that encyclical, the Pope said that “the problem of food insecurity” had to be addressed by “eliminating the structural causes that give rise to it, and promoting the agricultural development of poorer countries.”

“This can be done,” the Pope wrote, “by investing in rural infrastructures, irrigation systems, transport, organization of markets, and in the development and dissemination of agricultural technology.”

Pope Benedict stated said the developing world’s most urgent need in this area was “a network of economic institutions capable of guaranteeing regular access to sufficient food.”

Gregg believes a general draw-down of government involvement in agriculture, as well as energy, would allow these kinds of economic institutions to develop locally and compete globally.

The result would be a boost in developing countries’ food production capacity, and more affordable food for the world.

“Obviously you need some kind of regulatory framework,” Gregg said. “But if it were a less onerous regulatory framework, and different groups weren’t trying to influence the process for political and ideological reasons, I think you’d find that the price of food – and the price of energy – would fall.”